As you may know, there is a limit to the amount of bitcoin (BTC) that will ever exist: 21 million BTC. Vitalik Buterin, founder of Ethereum (ETH), wanted this for ETH too, but didn’t get his way in 2018. Now, five years later, he seems to be getting his way, but perhaps not in the way you expect. This is because since March more ether is being destroyed than is being created.
Buterin gets his way
In 2018 Buterin proposed a supply cap of 120 million ETH for Ethereum. This was laughed off at the time and perhaps rightly so, because he proposed this on April 1. A day later he also admitted that it was not meant too seriously, but he wanted it to be considered.
In the summer of 2021, Ethereum Improvement Proposal (EIP) 1559 was implemented with the ‘London’ update. Since then, part of every ETH transaction has been thrown on the digital pyre. In September 2022 saw the much anticipated Ethereum Merge. The network then made the transition from a proof of work system to one proof of stake system.
Started by both updates Ethereum slowly becoming deflationary. More ether is being destroyed, or burned, than is being generated. Since February, the network has become busier again and more and more ETH is being destroyed.
supply is down 100,000 ETH in 30 days pic.twitter.com/rAl4KJXS47
— ultra sound money 🦇🔊 (@ultrasoundmoney) May 7, 2023
So it looks like Buterin is getting his way five years later. The number of ETH in circulation peaked at 120.5 million ETH in March. Pretty close to the 120 million figure Buterin proposed in 2018. You would almost think that this is not a coincidence.
In 2018, @vitalikbuterin proposed a hard cap of 120,204,432 for ETH supply
It was rejected by the Ethereum community
At current burn rates we will be under Vitalik’s supply cap in 2 weeks pic.twitter.com/MlKDzZaJHz
— Evan Van Ness (@evan_van_ness) May 10, 2023
Ethereum is deflationary
As mentioned, bitcoin has a limit of 21 million coins. This means that until it reaches that number, bitcoin will remain inflationary. This will take some time, by the way: this historic moment will only take place in the year 2140, provided that the network is still running.
Currently, bitcoin’s inflation rate is 1.74 percent. That of physical gold is somewhere between 2 and 3 percent, depending on how much is extracted from the ground this year. In the present burn rate of Ethereum, the network has an inflation rate of -2.93 percent and is therefore deflationary. Ethereum is becoming scarcer and faster than bitcoin and gold.